Kevin Rudd (Griffith, Australian Labor Party, Shadow Minister for Foreign Affairs and Trade and International Security) Share this | Hansard source

I rise today to speak on the Australia-Japan Foundation (Repeal and Transitional Provisions) Bill 2006. When we talk about Australia’s relationship with Japan, we are talking about a relationship with our largest trading partner, and that is why it is important that we participate in a debate such as this. Whether we are dealing with cultural, economic or political institutions which affect the Australia-Japan relationship, we are talking about a relationship which deeply shapes our future, as in fact it has shaped so much of our economic past. The current two-way trade is somewhere in the vicinity of $50 billion.

Much has been said recently about the impact of the resources boom on Australia. Japan is an integral part of that story. Australia exported $9 billion worth of coal to Japan last year. The revenue gained from the resources boom for Australia has been exceptional. However, this growth has been driven by prices, as the Reserve Bank’s quarterly Statement on monetary policy pointed out last week. The revenue growth has been largely accounted for by higher prices, with volumes increasing only modestly. Growth in the value of resource exports has been strong over the past two years, averaging growth of 26 per cent per year. However, as the RBA points out, this has been almost entirely due to rising international commodity prices. The volume of resource exports has not performed so well. The ABS measurement of export volumes extrapolates from the price impacts to estimate how much the export capacity changes over time. The volume of Australia’s resource exports has averaged growth of just 1.3 per cent over the last five years. In fact, national accounts data shows that the mining industry has actually contracted over the past 12 months by 2.4 per cent. The resources boom is looming, therefore, as a missed opportunity for Australia.

Australia has not made enough of the boom itself, with the failure of government to provide the skills and infrastructure to ensure that resource export volumes were able to grow as rapidly as they might have in response to the rise in world demand. A lack of vision has seen this opportunity—possibly a once in a lifetime opportunity—to invest in our productive future, and in the drivers of economic growth, squandered. The general slowing in export growth, the decline in services, the narrowing of our export base and the failure of resource export volumes to respond rapidly to demand all add up to a pretty poor performance on exports during the most recent period. It is no wonder that the Reserve Bank of Australia in its quarterly statement issued on Friday said:

Despite the strong conditions prevailing internationally, Australia’s export performance has been disappointing.

This statement goes to the essence of the problem, and one which Labor has pointed to for a long, long time: Australia has been very fortunate that international commodity prices have been as strong as they are, but we need to be more than the lucky country. The resources boom, if Australia’s history is any guide, cannot last forever. When it ends—and it will end, hopefully not with a thud—at a certain point in our economic cycle, the impact on the general economy looms as being significant. That is why Australia continues to need to broaden its economic base into manufacturing as well as into the important services export sector.

There has been much discussion in the public debate about China as the external driver of the Australian economy. The impact of China, of course, has been significant. However, Japan, as I noted in my earlier remarks, is still Australia’s largest merchandise export destination and the largest bilateral trading partner. Our large resource base and abundance of land make Australia the perfect supplier of inputs to the Japanese industrial economy, with its strong industrial base. In 2005, Australia’s exports to Japan were valued at about $31 billion, comprising $28.4 billion in goods exports and $3.1 billion in services exports. On the flip side, Australia has imported $19 billion of goods and services from Japan. I am pleased to say that Japan is a country with which we have a trade surplus of $12 billion. That is why this economy is of such significance to Australia. This trade has grown considerably over time. Australia’s goods exports to Japan, for which we have a long-time series, have close to tripled since 1988, when they were valued at just $11.5 billion. The relationship between the two countries is a classic example of how two economies endowed with different resources can benefit from trade. The complementarity is clear in this sector when we look at the trade flows between Australia and Japan.

Australia’s top five exports to Japan are: coal, $9 billion; iron ore, $3.3 billion; beef $2.4 billion; and aluminium, $1.5 billion. Compare these to our four top merchandise imports: passenger vehicles, $6.7 billion; other vehicles, $1.2 billion; civil engineering equipment, $600 million; and vehicle parts, $500 million. Australia’s trade with Japan is not just in goods; services are also an important part of our trade. Australian services exports to Japan were valued at $3.1 billion in 2005 and I am pleased to say Australia actually has a services trade surplus with Japan of $1.3 billion.

However, as with total exports, Australia’s exports to Japan have slowed considerably over the past five years. Goods exports to Japan averaged growth of 7.2 per cent a year during the period of the Labor government. These have slowed to average just 5.2 per cent over the past five years. The same is also true of our services exports to Japan. Between 1991 and 1996 under Labor, exports of services to Japan grew at an annual average rate of 10.5 per cent per annum. Between 1996 and 2000, services exports to Japan declined by 20.2 per cent per annum and over the past five years declined by 0.4 per cent per annum.

Since tourism is our largest services export to Japan, the decline may in part reflect the slowing in the Japanese economy over this period. But on the question of the sale of tourism services to Japan, I think the Australian government needs to look far more deeply than that. There are significant problems emerging in terms of Australia as a preferred Japanese tourist destination. These problems have existed for a considerable period of time. We begin to encounter more and more debate about, for example, the adequacy of Sydney airport in dealing with incoming tourist traffic. This is not so much a question of runway capability as it is a question of the adequacy of the on-ground infrastructure of the airport. Satisfaction surveys by customers using Sydney airport and certain other airports in the country begin to reflect a basis for concern on the part of those who have a long-term interest in the sale of Australian tourism services to such an important historical market as Japan.

A division having been called in the House of Representatives—

Before the suspension, I was talking about the importance of the Japanese market. I have yet to see evidence of a focused and effective strategy on the part of the government of Australia to restore our previous status in that market. If we fail to do so, I am concerned about the overall impact on Australian tourism over time. It has almost been one of the inbuilt assumptions for the health of the Australian tourism industry that there would continue to be a robust inflow of visitors from Japan. If that cannot be sustained, as some of this data suggests, we have a serious problem on our hands when it comes to the future of the industry in Australia.

That is what is at stake when it comes to tourism exports. Looking elsewhere within the services sector, the number of Japanese students studying in Australia has never been great but, regrettably, there has also been some decline. In 1992-93 there were 773 Japanese born students studying in Australia, but by 2003-04 this had fallen to 520. These numbers are quite small compared with other major student inflows from elsewhere in the region, be it Malaysia, Singapore, Indonesia or China. Historically, large numbers do not come from Japan, but I am concerned when they start to trend even more negatively. If we look at the numbers from Malaysia alone, we have seen Malaysian student figures—for those taking courses in Australia—rise from 2,160 to 4,800. At the same time, the figures for those coming from Japan have gone in a reverse direction.

We know that Japan is one of the wealthiest economies in the world, and therefore the requirement for sending Japanese students abroad is less than for many developing countries of Asia—that is taken as a given. But I am concerned about the trend that is apparent, particularly given that Australia has become a positive and popular student destination for many countries in Europe. If you look across south-east Queensland today, you will see, for example, large and growing numbers of students from Scandinavia and from elsewhere in Europe studying in Australia. We do not see the same when it comes to Japan, despite the fact that the teaching of English is a priority within the Japanese professional development system and despite the fact that we have, uniquely, as an English-speaking country a virtually identical time zone to Japan, as well. These are important factors.

The challenge for us is how do we go about developing our services exports to this economy. In the transformation of global trade from commodities to services, from goods to services, the ability of economies to participate effectively in the global services trade will be one of the future critical drivers of economic growth. Australia’s aggregate data on participation in global services trade growth is very thin and declining in relative terms. With Japan, a major developed economy here in our own region, the challenge that lies at our doorstep is how we go about lifting our relatively modest services export numbers to Japan against the base which currently pertains.

I have referred to tourism and to education services. I would also like to refer to the potential for growth in the financial services industry. Australia’s financial services exports to Japan were valued at just $38 million in 2005, and Japan was the fifth largest destination for financial services exports from Australia behind the United States, the United Kingdom, Singapore and Hong Kong. These are very modest numbers indeed. Export financial services, within the explosion of global services growth, are one of the key drivers of economic and export growth for many developing economies today. That is why the global trade liberalisation round, which has recently come to a grinding halt, has been critical about not just what happens in agriculture and manufacturing but also the liberalisation of global services trade. Our ability to access this increasing global market, and particularly the services market within our region and particularly in sectors like financial services, is important for our future.

Recently I spoke at the annual conference of IFSA on the Gold Coast and, with the representatives of the Australian funds management industry, spoke at length on how we go about lifting Australia’s current significant domestic industry—the Australian funds management industry is a $1 trillion industry—into an export industry for the region. This is critical for us. Uniquely, we face, with the funds management industry, a massive base on the back of the Keating government’s superannuation reforms of the early 1990s. Because of that $1 trillion base which exists within the Australian economy, we have a unique opportunity to leverage from that into the sale of financial services, and particularly fund management services, in significant regional markets. Obviously Japan is one such market.

The challenge we face is how to properly access the Japanese market. On that question, we need to see direct government action. Australia has a number of significant comparative advantages. I have referred to one already—the relative size of the Australian funds management industry. Our industry, from the most recent data I have seen, is the single largest funds management industry in the region, minus Japan. Take Japan out of the equation and our $1 trillion funds management industry is the largest business of its type anywhere in Asia. According to the global data, it is the fourth or fifth largest funds management industry in the world. This is a significant by-product of important national reforms brought in by the previous Labor government. We now have an opportunity to take that and translate it into a new export business for Australia.

So many comparative advantages already exist. Firstly, we have critical mass. Secondly, we have a depth and breadth of industry expertise. The funds management industry in this country employs hundreds of thousands of people. The aggregation of technical and financial services and information technology services associated with the funds management industry is no easy thing to obtain, but we have developed it effectively over the last 15 years. It provides the personnel basis from which to platform into the region, with the object of making Australia the funds management hub for Asia, just as Dublin is becoming the hub for Europe. To a certain extent, Luxembourg has as well.

Along with critical mass and depth of expertise, the third thing Australia has going for it in this respect is the regulatory environment. We have a positive record of probity in this industry. If there is one industry, apart from the banking sector, where probity is at an absolute premium, it is the funds management industry. Obviously there are exceptions to this rule, but Australia’s regulatory environment, including the operation of APRA and the other regulatory agencies, is a sophisticated regulatory environment relative to what exists in many other jurisdictions. Added to that, in Australia we have an independent judiciary. Where matters of dispute involve large quantities of money and the efficacy and probity of fund managers, recourse to an independent judicial system is essential to external investors having confidence in using Australia as a financial services hub.

Finally, Australia has the relative advantage of its time zone. Japan’s time zone is similar to Australia’s east coast time zone. Other funds management markets or potential funds management markets across Asia, be it on the Korean peninsula, in China or in the rest of South-East Asia, are broadly within the Australian time zone. Relative to other funds management centres across the world, be they in North America or Western Europe, this presents Australia with a remarkably opportune set of advantages, which we should be promulgating.

Across East Asia the population is ageing. This is now critical for Japan and, prospectively, for China. With the ageing of populations, retirement incomes policy pushes policy makers in particular directions. Retirement incomes policy in Japan is critical and prospectively will be for policy decision makers in Beijing. In Beijing the debate today is about retirement incomes policy and the adequacy of aged care services, given the ageing of the population. In China, a product of the one-child family is that the traditional family base as a means of providing support for older people is falling apart at the seams. The fundamental demographic shifts across the region, particularly in the largest economies in North-East Asia, China and Japan, present huge future opportunities for our economy, which has a mature funds management industry which can provide critical financial services to the neighbourhood.

Of course, the existence of a market is one thing; whether or not there are barriers to entry is another, and we would be deluding ourselves if we believed at this stage that there was untrammelled entry into the Japanese financial services market—or, for that matter, that of China. That is why, as I noted before in my remarks, it is absolutely critical that we obtain global trade liberalisation of the services sector in order to make sure that it is possible for mature sectors such as exist in Australia to make the most of their trade opportunities around the region and around the world.

Japan’s domestic financial services regulations and institutions have so far made it difficult for foreign financial services companies to compete in the local market. However, driven by domestic impulses within Japan, some regulatory change is slowly under way. Japan Post, of course, is the best most recent example of the kind of non-tariff barriers Australian financial services businesses have faced. But, when it comes to Japan Post, or Kampo, this one also is currently the subject of recent regulatory change within Japan itself. Japan Post, Kampo—probably more accurately called a bank—operates a very large insurance business. It is by far the largest player in the Japanese insurance market and is larger than the other four biggest providers in Japan put together.

Japan Post has significant regulatory tax and supervisory advantages over private companies. In 2005, Japan’s Diet established a framework to reform Japan Post, which, if achieved, would see significant progress in an opening of restrictions to global insurance providers. We will be waiting keenly to see what outcome is achieved as a result of these reforms to Japan Post and more broadly across the Japanese insurance and financial services industry. This remains a critical priority for Australia’s export future. Unless we boost our export activity across the board but in particular in the services sector, which is such a large engine of global economic growth, we will continue to lag behind.

It is for these reasons that last month I announced that a Labor government will create an Australian funds management export task force to look at all the current regulatory impediments and other impediments which exist to transforming our domestic funds management industry into a key export business for the region, with the object of turning Australia in time into the hub of the funds management business in Asia. The comparative advantages are significant. They are substantial. They now need to be realised. This will require active cooperation between both government and the industry in order to bring it about. That is why we need a specific task force to ensure this work happens; otherwise, I fear it will not.

Missing from my remarks so far has been the question of the underpinnings of an economic relationship, which is of course cultural relations. The Australia-Japan Foundation has existed for a long time with that purpose, which is to provide a formal framework to govern the cultural relationship between the two countries. It has done many good things over the years. It needs to do many more. There is a fear on the part of many of those associated with the Australia-Japan relationship that it has become not just a mature relationship but an old relationship, to the extent that cultural assumptions between the two communities, between the two countries, between the two cultures, are beginning to be taken for granted. Formal cultural exchanges still have their role because Japan is a rapidly changing and evolving society and our time capsule view of Japan of the 1960s and 1970s does not reflect the Japan of the last decade and the decade which we are embarking upon. Therefore it is important not just that we see institutional change when it comes to the future relationship of the Australia-Japan Foundation and the Department of Foreign Affairs and Trade resolved with the legislation before the House but that the Australia-Japan Foundation be given a fresh operational mandate to take our cultural relationship to a new platform.

I conclude on this: when it comes to Japan, the Australian Labor Party, when it was in government and through bold national reforms under the Keating government, took seriously the whole question of what underpins a cultural relationship. The key to culture is language. When it comes to Japan, it is still surprising, visiting that country, how thinly English is spoken across the Japanese business and political elite. We in this country have prided ourselves for a long time on leading many other Western countries in the teaching of Asian languages, including Japanese. That is why the Keating government brought in in 1995 the National Asian Languages and Studies in Australian Schools Strategy. That strategy set as its object to have four priority Asian languages taught across the Australian education system through the schools: Japanese, Chinese Mandarin, Korean and Indonesian.

The program was implemented in 1995 and, until 2002-03, had complete bipartisan support. It was a visionary program which we had, for a season, complete bipartisan support on. It was visionary because it considered this: how do we create for the future an Asia literate generation of Australians and, in the case of Japan, a Japan literate generation of Australians capable of taking up the new business opportunities of the future with our principal markets in the region? This does not happen automatically. You need to inculcate the teaching of these difficult languages in the education system from an early age. That is why we did it that way.

The great tragedy for our nation is that, despite the fact that by 2003 we had three-quarters of a million Australian schoolkids studying one or other of these priority Asian languages, the Howard government, in 2002-03, abolished all federal funding for the program. If you are serious about the long-term underpinnings of a cultural and economic relationship with Japan and any other of the principal economies and societies of our region, language remains the key. You cannot have an outfit like the Australia-Japan Foundation acting out there in isolation from the rest of our cultural and educational policy. The two must come together.

Why don’t we have a vision for ourselves as a country to create here the most Asia literate country and society in the collective West? What an enormous badging and branding opportunity for the country in terms of how we market ourselves to those who wish to market into the region from Europe and from North America to be able to say: ‘We know most about this country and most about this region compared with any other Western culture and Western economy. We have the largest number of Japanese speakers, we have the largest number of Chinese speakers, and we have these deeply inculcated programs in our education and schools system.’ That was the vision which was established. Regrettably, that is the vision which was dispensed with and jettisoned by the reckless decision in 2003 by the then education minister to junk federal funding for the program. We support the bill but, when it comes to the cultural underpinnings of what is a critical economic relationship for Australia, I call on the government once again to recommit itself to the proper national funding of the National Asian Languages and Studies in Australian Schools Strategy.

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